AMC Networks Inc Stock Analysis

AMC Networks Inc Stock Analysis - I believe everyone trading with stocks must be aware of AMC Networks Inc. The company owns and operates various cable television's brands delivering content to audiences, and a platform to distributors and advertisers in the United States and internationally. The company operates in two segments, National Networks and International and Other.

The stock seems a great opportunity and many investors would have already made a lot trading with the shares of this stock. But, there is no guarantee when it comes to trading. Hence, in this article, I have underlined few important factors that are responsible for deciding the fate of this particular stock.

SWOT Analysis

The SWOT analysis provides a lucid explanation of the overall performance of a company’s stock. By considering the Strengths, Weaknesses, Opportunities and Threat at any instance, one can make the informed decision. Hence, here is the SWOT analysis for AMC Networks.

Strengths of AMC Networks – Internal Strategic Factors:

High level of customer satisfaction: The company with its dedicated customer relationship management department is able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.

Highly skilled workforce through successful training and learning programs. AMC Networks is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.

Highly successful at Go to Market strategies for its products.

Strong Free Cash Flow: AMC Networks has strong free cash flows that provide resources in the hand of the company to expand into new projects.

Strong Brand Portfolio: Over the years AMC Networks has invested in building a strong brand portfolio. The SWOT analysis of AMC Networks just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.

Superb Performance in New Markets: AMC Networks has built expertise at entering new markets while capturing new milestones. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.

Successful track record of developing new products and product innovation.

Automation of activities brought consistency of quality to AMC Networks products and has enabled the company to scale up and scale down based on the demand conditions in the market.

Weakness of AMC Networks – Internal Strategic Factors

Investment in Research and Development is below the fastest growing players in the industry. Even though AMC Networks is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.

Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors.

One of the reasons why the days inventory is high compared to its competitors is that, AMC Networks is not very good at demand forecasting, thus ending up keeping higher inventory both in-house and in channel.

Need more investment in new technologies. Given the scale of expansion and different geographies, the company is planning to expand into. AMC Networks needs to put more money in technology to integrate the processes across the board. Right now the investment in technologies is not at par with the vision of the company.

There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.

Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.

Opportunities for AMC Networks – External Strategic Factors

Opportunities for new markets because of government agreement: The adoption of new technology standard and government free trade agreement has provided AMC Networks an opportunity to enter a new emerging market.

New environmental policies: The new opportunities will create a level playing field for all the players in the industry. It represents a great opportunity for AMC Networks to drive home its advantage in new technology and gain market share in the new product category.

Lower inflation rate: The low inflation rate brings more stability in the market, enable credit at lower interest rate to the customers of AMC Networks.

Organization’s core competencies can be a success in similar other products field.

The market development will lead to dilution of competitor’s advantage and enable AMC Networks to increase its competitiveness compared to the other competitors.

Economic uptick and increase in customer spending. After years of recession and slow growth rate in the industry, there is an opportunity for AMC Networks to capture new customers and increase its market share.

The new taxation policy can significantly impact the way of doing business and can open new opportunities for established players such as AMC Networks to increase its profitability.

Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank, the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for AMC Networks in other product categories.

Threats AMC Networks Facing - External Strategic Factors

Intense competition: Stable profitability has increased the number of players in the industry over last two years which has put downward pressure on not only profitability but also on overall sales.

Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.

Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.

Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.

Imitation of the counterfeit and low quality product is also a threat to AMC Networks’s product, especially in the emerging markets and low income markets.

Rising raw material can pose a threat to the AMC Networks profitability.

The company can face lawsuits in various markets given: Different laws and continuous fluctuations regarding product standards in those markets.

Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for AMC Networks in those markets.

AMC Networks – Important Indices

What the AMC Networks ratios are up to? Let’s figure it out with the detailed analysis of the various ratios affecting the current as well as future price of the stock of AMC Networks.

Competitive Comparison

AMC Networks (AMCX), have a Price to Sales Ratio of 1.4, a Price to Book Ratio of 15.8 and a Price to Earnings Ratio of 8.2. The valuation ratios are lower than industry average, but the P/B ratio are very high compared to that of industry which is the only signal of possible overvaluation.

But the another’s valuation ratios are below industry average. Which again signifies that the probability of this company being undervalued is higher. Moreover, this company have a 5-Yr Revenues CARG of 15.7%, a Med Operating Margin of 27.4%, Interest Coverage Ratio of 5.8. So, their enterprise earnings cover 5.8 times the annual interest expenses and a Debt to Equity Ratio of 13.5 very high compared to industry.

All the data described above conveniently take us to the brighter side making this company look very profitable. Because of its high margin and revenues growth compared to industry, it is undervalued. Although, the valuation ratios are lower than industry competitors and peers, the debt is very high as compared to industry. But if you ask me, I think they can cover this large amount of financial commitments. These can be further analyzed by using liquidity and

Profitability

AMC Networks (AMCX) have Gross Margin higher than 50%, Operating Margin up to 25%, EBT Margin and Net Margin higher than 15% for most of the years. This signifies the constant profitability of the company. Moreover, this company is backed with a decreasing Tax Rate %, low Asset Turnover Average, increasing return on assets, increasing Return on Invested Capital, very high return on equity % for 2017 and a growing interest coverage ratio.

Summarizing the above data, we can deem that the company has a very good, stable and growing profitability over time. A convincing factor that long term investors would appreciate.

Growth

This company has growing revenues, operating income, net income and earnings per share, year over year. However, these data are in decreasing rates for 3 as well as 5-year averages. This means that the company is growing but at a decreasing rate over time. This can be further interpreted to be a bad signal. Although the growth is happening, the slow rate can be intimidating going forward.

Cash-Flows

AMC Networks (AMCX), have decreasing operating cash-flows and free cash-flows year over year by a very tiny percentage and Growing capital expenditures. So, we can be assured of the investing happening within the company with declining both Free Cash-Flows/Sales % and Free Cash-Flows/Net Income. The first two things are bad signal because it significate a declining value for investors. On the other hand, the last two things can be a signal that the company accounting standards is getting aggressive or there is a significant increase of other items in their income statements which deserves a mention.

Financial Health

This company has a Current Ratio above 2 and a Quick Ratio above 1. So, for every dollar the AMC Networks has in its current assets, it can invest approximately 0.85 cents and still can cover their financial commitments. Moreover, this company has a Financial Leverage Ratio and Debt to Equity Ratio which appears to be moving together (positively correlated). Hence, this company looks good in financial health terms. In the same order of ideas, the Debt to Equity Ratio is decreasing making this company lower in terms of financial risks over time.

Efficiency

AMC Networks (AMCX) is increasing Days of Sales Outstanding and decreasing payables period. This is done to increase the cash conversion cycle. Moreover, it has decreasing Receivables, Inventory and Fixed Assets Turnover Ratios while a stable Asset Turnover Ratio. This mean that the company is stable in operating efficiency but needs to be more accurate and efficient in cash management.

Valuation

AMC Networks (AMCX), have lower valuation ratios as compared to the industry average except for P/B ratio which can be a signal of possible undervaluation. In contrast, this company have a 5-year average valuation ratios greater than current ones. So. I think that this company can go on a reversal tendency from bearish to bullish and can increase the equities price according to the historical ones (opportunity for undervalue stock seeker).

Valuation History

For AMCX stock investors who follow momentum strategies, this could turn out a bad deal. This is because of the relative valuation historical trend of it. However, it can be an opportunity for the contrarians who can look at strong company financials despite the popularity of it. If you are patient and willing to wait for the reversal of the tendency for getting nice total returns on investments, you can count on this stock.

The Conclusion

As mentioned above, the growth of the stock is not at a high pace and can disappoint those looking for a quick bait. However, the other parameters backing the profile of the company would certainly make those happy ready to wait for some time holding the stock.